Draft Finance Bill 2017: Patent Box – Cost Sharing Arrangements

Patent Box – Cost Sharing Arrangements

Patent Box implications for companies involved in collaborative research and development (R&D).


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Who should read this? 

This measure is of interest to those companies seeking to make Patent Box claims under the new rules where they have a Cost Sharing Arrangement in place for R&D purposes.

Summary of proposal 

Further to the new Patent Box rules included in Finance Act 2016, these rules explain how companies that collaborate on R&D should apply the new R&D fraction to these ‘Cost Sharing Arrangements’ (CSAs).

The overarching aim of the draft legislation is that companies that undertake R&D collaboratively through CSAs should not be penalised or gain an advantage under the new Patent Box regime compared to companies that subcontract their R&D to connected and/or unconnected parties. 

The rules widen the scope of arrangements that can qualify as CSAs with the removal of the requirements for contributions to be proportionate to the amount of profit received from the arrangement, and by allowing development activities that lead to the creation of an IP right to contribute to the benefit.

The rules provide that:

• Payments received for R&D undertaken under a CSA should be netted against any expenditure under the arrangement, so that only net expenditure incurred by the company goes into the R&D fraction;

• Where the parties to the arrangement are unconnected, net expenditure is treated as subcontracted R&D to third parties and is ‘good’ expenditure for the R&D fraction.  Where the parties to the arrangement are connected, net expenditure is treated as subcontracted R&D to related parties and is ‘bad’ expenditure for the R&D fraction;

• Where another party to a CSA, other than the Patent Box company, contracts out R&D the expenditure will be treated as if the Patent Box company contracted out that R&D;

• Where payments are made to join a CSA or for additional profits or rights under the CSA, a just and reasonable amount of the payment will be treated as an acquisition cost. Similarly, where income is received to permit another party to join a CSA or to give up some of the company’s rights, a just and reasonable amount will be treated as Relevant IP Income (RIPI); and

• Where a company joins a CSA, or IP is introduced to a CSA, on or after 1 April 2017, the IP will be ‘new’ IP in the hands of that company.


The rules are effective for accounting periods commencing on or after 1 April 2017. Periods straddling this date will be split and treated as separate accounting periods.

Our view

Publication of the cost sharing rules will be welcomed by those that have been waiting for certainty on how the new Patent Box rules will apply to their CSAs.  

Whilst being a comprehensive set of rules that add some complexity, they provide increased flexibility to accommodate how these, often complex, arrangements work in practice. 

The widening of the definition of what can qualify as a CSA removes the previous requirement for companies to be contributing to and benefiting from CSAs in equal proportions; a condition that, given the complexity of some of these arrangements, can often be difficult to demonstrate. This should mean that more companies that undertake collaborative R&D can benefit from the Patent Box regime. 


Carol Johnson

+44 (0)20 7311 5629


Peter Chapman

+44 (0)121 335 2782



Finance Bill 2017 Draft Clauses

Finance Bill 2017 Draft Clauses

KPMG’s Commentary provides an overview of the draft clauses and insight into the measures both those of general interest and for specific groups.

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